As decentralization continues to shatter its way into nearly every industry, finance is one of the areas where the effects have been the most pronounced. In fact, many believe that it's already made a huge impact within banking and other finance-related sectors.
Many within the industry are calling it decentralized finance (DeFi) and the explosion in activity has already shown the potential of how blockchain smart contracts can be utilized to make even better products.
That's because DFCs couldn't exist without decentralized finance, as it would be impossible for them to operate in the same way if they were still under the control of traditional financial institutions.
Let's explore this closer by giving you an example. Let's say that someone wants to use a smart contract to create an interest-bearing savings account. That person could use DFCs to create an agreement between themselves and another party that would allow them to receive interest on their savings. Then they could program it into the smart contract using something like Ethereum, which is one option for DeFi.
However, this wouldn't be possible if you were trying to do it through a centralized service. The reason for this is that those types of services typically aren't transparent, which means it would be very difficult to build the type of trust needed to establish a smart contract like this.
And as we've shown before , DFCs and blockchain technology go hand-in-hand. That's because they both allow people to engage in transactions without needing to rely on a third party.
What does this mean for decentralized finance? Well, it shows that DFCs are likely going to play an important role within the industry moving forward. It also means that institutional investors need to start paying closer attention to blockchain technology and cryptocurrencies if they want to remain competitive in the years ahead.
The Future of Decentralized Finance
This is especially true for decentralized finance, as it's gaining ground quickly and has the potential to fundamentally change the game. That's because DFCs are designed to lower costs, reduce barriers, and limit risks associated with moving money around. And they do this by removing the need for traditional institutions like banks or exchanges.
Why You Should Care About Decentralized Finance
As a result, it's important for everyone to put decentralized finance on their radar. But especially institutional investors, as this technology is poised to have a major impact on how money moves through the global economy .
However, that doesn't mean they should be afraid of DeFi. In fact, the opposite is true. That's because this technology has enormous potential, which means there are huge opportunities to profit from DeFi if they know where to look.
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